2015 (10) TMI 423 - AT - Central Excise

Reversal of CENVAT Credit - goods destroyed in the fire - Whether the provisions of Rule 3(5B) of CCR, 2004 are applicable to the facts of this case or not - Held that - It was actually the inputs which were destroyed, the appellants stand is that it was the work-in-progress, which was destroyed in the fire. We note that the appellant, right from their first letter onwards, in all their communications addressed to the Revenue, have repeatedly submitted that the fire broke out in the bulk drug unit of the appellant, which unit is located in the manufacturing section. Inasmuch as the bulk drug manufacturing section of the plant is away from the stores, where the inputs were stored, the said fact itself establishes that the inputs had been issued for manufacturing and were work in progress. It is seen that the Commissioner has referred to the appellants claim made before the insurance company, wherein description of the goods stand given by them and has concluded that inasmuch as the goods described by the name of the inputs, on which credit was availed, it has to be held as if the inputs were destroyed. - goods were admittedly work-in-progress, in which case, no reversal of credit is justified. There is clearly no evidence on record to substantiate Revenue s allegations and findings that the destroyed goods were actually inputs, which were not issued for further manufacturing - Respondents are not required to reverse the Cenyat credit. As such, I do not find any infirmity in the impugned order - Decided against Revenue.

Summary

Issues:
1. Appeal against dropping show cause notice to deny Cenvat credit on inputs lost in fire.
2. Applicability of Rule 3(5B) of CCR, 2004 to the case.
3. Interpretation of CBEC Circular No. 907/27/09-CE dated 7.12.09.
4. Destruction of work-in-progress and semi-finished goods in fire.

Analysis:
1. The appeal was made by Revenue against dropping a show cause notice aiming to deny Cenvat credit on inputs lost in a fire incident. The respondent's remission claim was rejected by the Commissioner, leading to the issuance of the show cause notice. Both lower authorities ruled in favor of the respondent, prompting the Revenue's appeal.

2. The key issue was the applicability of Rule 3(5B) of the Cenvat Credit Rules, 2004 to the case. Rule 3(5B) mandates the payment of an amount equivalent to the Cenvat credit taken on inputs written off fully or partially in the books of account. The Tribunal found that as the inputs were lost in a fire while in the process of manufacturing final goods, the rule did not apply in this scenario.

3. The debate also involved the interpretation of CBEC Circular No. 907/27/09-CE dated 7.12.09. The Circular was found to be contrary to judicial pronouncements, particularly referencing the Tribunal's decision in the Nectar Lifesciences case. The Tribunal emphasized that if inputs issued for further manufacturing are destroyed during production, no reversal of Cenvat credit is warranted.

4. Regarding the destruction of work-in-progress and semi-finished goods in the fire, the Tribunal examined the physical layout of the manufacturing unit and the location of the inputs store. It was concluded that the destroyed goods were work-in-progress, not inputs awaiting further manufacturing. Consequently, the respondents were not obligated to reverse the Cenvat credit, and the impugned order was upheld, dismissing the Revenue's appeal.